Is The Fed Funding The Treasury Through The Banks?

[girl gone mad]

From http://www.zerohedge.com/article/guest-post-fed-funding-treasury-through-banks">Zero Hedge:

Recent data from the Fed's balance sheet indicates that even with the Fed no longer printing money directly since March, a dramatic reduction in bank Excess Reserves to the tune of $200 billion over the past 2 months has provided the same net benefit in liquifying the markets. And since none of this money is making its way to end consumers and small business borrowers, it is more than realistic to speculate that banks are merely using the formerly "excess" cash to purchase treasuries, thereby continuing the Treasury purchasing infinite Ponzi loop.

Recently I decided to take another look at the Fed's balance sheet, and while I am none too surprised, I must report that the Fed has printed approximately $200B from April 7th 2010 to June 30th 2010. What is interesting is *how* they went about doing it.

Here is the graph which shows this. The blue line represents the total increase in the size of the Fed balance sheet since September 10th 2008. The red line represents the marginal increase in the Fed balance sheet, net of 'Excess Reserves' held at banks but not yet loaned out, and net of Treasury sterilization:



Note that from November 2008 through April 2010, "Real Economy" printing was essentially the same. Sometimes it grew, but inevitably those periods were reversed. The Fed was clearly targeting that figure. Well, something changed as of April 7th 2010.

That date should ring a bell. It is almost exactly right after the end of the Fed printing programs, which finished up at the end of March.

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